State leaders’ decade of neglect imperiled fragile child care system. The pandemic nearly made it collapse.

State leaders’ decade of neglect imperiled fragile child care system. The pandemic nearly made it collapse.

December 1, 2021 0 By Maria Polletta

As coronavirus cases crept up across Arizona in March 2020, Gov. Doug Ducey announced a statewide school shutdown meant to curb the spread of COVID-19.

It was, at the time, the most aggressive step state leaders had taken to prevent infections. And for employees and clients at Yuma child care center Desert Trails, who’d grown increasingly worried about the safety of their families, it was a breaking point.

“As soon as the governor said ‘schools are closing,’ people … really just panicked,” center director Arianna Zaroff said. “We only had about 15 staff, and I would say at least half those staff,” after weighing the risk of exposure against the realities of a low-paying, high-stress industry, ”basically walked out on us.”

On top of that, “we lost families very quickly,” she said. “There were several days where we only had five, six, 10 kids in the center,” which is licensed for 78.

That meant a sharp drop in earnings as mortgage, utility and most other expenses held steady. For a child care provider that, like most in Arizona, was already operating on thin margins and struggling to compensate staff, it was a “massive hit,” Zaroff said.

$1.2 billion infusion of federal relief funding has helped soften the financial blow to Desert Trails and other operators, staving off a sector-wide collapse. But industry experts say even that sizable amount alone isn’t enough to reverse the decade of neglect the child care system endured at state leaders’ hands before the pandemic took hold

Elected leaders slashed state child care dollars when Arizona was in the red during the Great Recession, eventually eliminating the state’s contribution to subsidies designed to make care more affordable. They declined to restore that funding when the state was in the black, instead pushing through a major tax cut that state budget analysts found would mostly benefit the wealthy. In between, officials bungled multiple opportunities for federal financing, in some cases failing to do what was necessary to secure new funding while, in others, letting tens of millions of dollars in existing federal aid sit unused.

Those decisions exacerbated the fragility of a system that already didn’t work particularly well for anyone except Arizona’s wealthiest families, who could weather climbing child care costs and declining state support.

In the two years preceding the pandemic, Arizona already had lost more than a fifth of its child care providers—nearly 900 operators—as they struggled to stay afloat amid low state reimbursement rates that remained largely unchanged for almost 19 years. High turnover among workers, almost 20% of whom lived in poverty, further contributed to an industry in crisis. And nearly half of Arizonans lived in a so-called child care desert, meaning there were more than three children for every available spot, and those who didn’t often couldn’t comfortably afford care.

From January to June 2020, a period capturing the first three months of the pandemic, another 244 providers shut down, according to the most recent data available from the state’s Child Care Resource and Referral network.

“The early childhood system has tightened its belt and worked on a shoestring budget and lowered costs to the point … it can’t function,” said Kelley Murphy, vice president of policy for the Arizona-based Children’s Action Alliance. She said the pandemic exacerbated “pretty deep issues that were troublesome before COVID hit.”

An unstable, unaffordable child care sector has clear implications for children: They need safe, developmentally appropriate care to arrive at kindergarten on equal academic and social footing, in turn positioning them for long-term academic success.

It also has far-reaching consequences for the economy.

Parents, especially single heads of household and those without paid time off or other benefits, need reliable child care to earn a living and advance. Further limiting access to high-quality care disproportionately affects rural communities, low-income families and working women.

During the pandemic, women’s workforce participation dropped to its lowest level since 1988, as mothers took on the bulk of child care duties at home. About 1.4 million of the women still out of work early this year were parents, according to Census Bureau data, and less-educated mothers of color continue to experience the slowest financial recovery.

Federal recovery funding has given Arizona a chance to reevaluate and address longstanding structural problems in its approach to funding and delivering child care services, according to local and national experts. If officials don’t seize it, they say—and if an ambitious federal plan to reduce child care costs nationwide never makes it through Congress—the state will likely end up back where it started once relief dollars run out.

“We’re many, many years behind other countries in terms of finally making these investments,” said Rasheed Malik, associate director of early childhood policy research at the left-leaning Center for American Progress. “It’s expensive, but it’s potentially more expensive the longer we wait to fix this.”

‘Not the kind of business where you can just cut corners’

Early childhood development advocates had long warned of the unsustainable nature of Arizona’s child care market in the years leading up to the pandemic.

Reliable, high-quality child care is expensive to provide. And strict health and safety requirements mean it’s “not the kind of business where you can just cut corners” to save money, Malik said.

As a result, providers often end up passing costs along to parents via higher tuition rates, risking pricing out all but the highest earners. By the time the pandemic hit, the average cost of child care for toddlers had topped $8,500 a year in Arizona, according to the Economic Policy Institute, while infant care averaged nearly $11,000 annually. That’s more than base tuition at an in-state college.

“Most business models … if your costs go up, you raise your fee,” said Liz Barker Alvarez, chief policy adviser at early childhood agency First Things First. “In child care, the people who need your service the most can’t afford you to raise your fees. You’ll actually lose families, because they just won’t be able to afford it.”

Providers that opt not to raise tuition typically lean on state child care subsidies. Families apply for assistance through the Arizona Department of Economic Security, which then pays operators serving those families directly.

Though not every family that qualifies for aid secures it, the assistance makes a huge difference for those that do: Dede Mitchell, a Yuma-area single parent of two girls, told AZCIR there was “definitely no way” she could have afforded child care in recent years without state assistance, despite working full-time.

Providers who rely heavily on subsidized clients, on the other hand, tend to just scrape by.

Arizona’s reimbursement rates have long failed to cover the true cost of providing safe, high-quality care. Murphy, with the Children’s Action Alliance, pointed to state lawmakers’ reluctance to chip in state funding in recent years as a key reason why.

Before the recession, Arizona allocated nearly $85 million in state General Fund dollars to child care assistance, about 43% of the total cost of aid at the time, according to an analysis by Arizona State University’s Morrison Institute for Public Policy. Money administered through the federal Child Care and Development Fund, which aims to reduce the child care cost burden on low-income parents, and Temporary Assistance for Needy Families program, which provides cash assistance, covered the rest.

By 2010, state lawmakers had cut Arizona’s contribution by more than 70%, to about $24 million. In 2011, then-Gov. Jan Brewer wiped out the remainder, risking another $40 million in matching federal funds the state would’ve lost had First Things First, which is funded through a tobacco tax, not stepped in to fulfill Arizona’s requirements.

With the exception of $7 million in aid for kids in Department of Child Safety custody, “they’ve not replaced any of the rest of that funding at the state level,” Murphy said. “We’ve been relying on federal funding for the last 11, 12, 13 years.”

That’s despite 20-plus attempts by a handful of lawmakers—primarily Democrats, but at least one Republican—to expand child care assistance or increase provider reimbursement rates using General Fund money over the last decade. Most bills did not get a committee hearing in the state’s GOP-controlled Legislature, which generally has been loath to increase spending on social services.

“For some of those years, (legislative leaders) said we didn’t have money,” said Sen. Lela Alston, a Phoenix Democrat who has tried seven times to increase state child care funding since 2012. “Now, we do have money, and we’re trying to give more breaks to the wealthy with the flat tax stuff.”

In approving a nearly $2 billion tax break earlier this year, Republican leaders argued the move would keep more money in Arizonans’ pockets, which residents could in turn spend however would most help their families. But the cut won’t exactly be a game-changer for those in lower income brackets: The state’s Joint Legislative Budget Committee projects those earning $50,000 or less will save, at most, $39, while those earning between $500,000 and $1 million a year will save more than $12,000.

“Getting those subsidies for child care into the ongoing side of the ledger is tough,” Alston said. “I don’t know the answer.”

Rep. Michelle Udall of Mesa, the leading Arizona Republican to push for child care investments in recent years, has had slightly more success than Democrats, perhaps because her bills have largely focused on freeing up federal funding versus spending state dollars. But even that has been an uphill battle at times, such as when she fought to make federally funded pandemic loans available to child care providers in spring 2020.

“Many communities throughout Arizona already experience a child care desert, and the inability for child care providers to reopen their businesses as a result of this pandemic may result in a permanent loss of thousands of child care slots,” Udall told her colleagues on the House floor at the time.

“For businesses to thrive in Arizona, their workforce needs reliable and affordable child care. If we do not do something now to support the child care industry, it will take much longer for Arizona to be back in business.”

The measure made it through the House, then stalled in the Senate.

Fate of new reimbursement rates unclear

Barbie Prinster, program manager at the Arizona Early Childhood Education Association, also highlighted the way the Department of Economic Security determines reimbursement rates to explain why they’ve historically fallen short.

Federal rules require the agency to complete a “market rate” study every three years, collecting and analyzing fee information from providers throughout the state.

The studies are meant to capture the true cost of providing child care, but instead simply reflect what providers charge, Prinster said. Provider fees are typically based on what area families can afford, she said, not the amount required to run a safe, well-staffed child care business.

“I have a member that charges $370 a week for an infant off of (Interstate) 17 and Carefree Highway, then I have a provider on 43rd Avenue and Thomas that charges $175 a week for an infant,” she said. “But the cost of doing business for them is probably close to the same.”

In 2016, the federal government gave states the option to use alternative or additional methods to set reimbursement rates, but it wasn’t until recently that DES partnered with First Things First to launch its first “cost of quality” study, which is ongoing.